Allstate Reports 2008 Third Quarter Results
Catastrophe Losses and Investment Valuation Declines
Partially
Offset by On-going Risk Mitigation Actions
NORTHBROOK, Ill.--(BUSINESS WIRE)--The Allstate Corporation (NYSE: ALL):
- Catastrophe losses of $1.8 billion, including losses from Hurricanes Ike and Gustav, were partially mitigated by exposure reduction actions and reinsurance.
- Pre-tax net realized capital losses of $1.3 billion reflect unprecedented declines in credit markets, partially offset by positive impact of risk mitigation programs.
- Profitability from underlying underwriting remains strong and within full-year outlook range.
- Strong liquidity and capital positions.
The Allstate Corporation (NYSE: ALL) today reported results for the third quarter of 2008:
| Consolidated Highlights | ||||||||
|
Three Months Ended
September 30, |
Change
(NM – not meaningful) |
|||||||
|
($ in millions, except per share amounts and ratios) |
Est.
2008 |
2007 |
$ |
% |
||||
| Consolidated revenues | $7,320 | $8,992 | $(1,672 | ) | (18.6 | ) | ||
| Net (loss) income | (923 | ) | 978 | (1,901 | ) | (194.4 | ) | |
| Net (loss) income per diluted share | (1.71 | ) | 1.70 | (3.41 | ) | NM | ||
|
Operating (loss) income(a) |
(190 | ) | 893 | (1,083 | ) | (121.3 | ) | |
|
Operating (loss) income per diluted share(a) |
(0.35 | ) | 1.54 | (1.89 | ) | (122.7 | ) | |
| Return on equity | 1.1 | 23.2 | (22.1) pts. | NM | ||||
|
Operating income return on equity(a) |
10.0 | 21.2 | (11.2) pts. | NM | ||||
| Book value per share | 31.44 | 37.45 | (6.01 | ) | (16.0 | ) | ||
|
Book value per share, excluding the impact of unrealized net capital gains and losses on fixed income securities(a) |
34.25 |
36.71 |
(2.46 |
) |
(6.7 |
) |
||
| Catastrophe losses | 1,816 | 343 | 1,473 | NM | ||||
| Property-Liability combined ratio | 112.7 | 91.0 | 21.7 pts. | NM | ||||
|
Property-Liability combined ratio excluding the effect of catastrophes and prior year reserve reestimates (“underlying combined ratio”)(a) |
85.9 |
86.0 |
(0.1) pts. |
NM |
||||
(a)Measures used in this release that are not based on accounting principles generally accepted in the United States (“non-GAAP”) are defined and reconciled to the most directly comparable GAAP measure and operating measures are defined in the “Definitions of Non-GAAP and Operating Measures” section of this document.
“Catastrophes, including two of the ten costliest hurricanes in U.S. history, and the impact of a global financial crisis contributed to a quarterly net loss for our company. In this environment, our proactive and decisive approach to risk reduction has benefitted Allstate,” said Thomas J. Wilson, chairman, president and chief executive officer of The Allstate Corporation. “Hurricane losses would have been twice as high without our catastrophe management programs. Our investment portfolio initiatives enabled us to avoid large losses in financial companies and helped protect the value of our equity investments. Our property-casualty business continued to deliver good underlying margins and operating cash flow, which is extremely important in this economic climate. As a result, Allstate has maintained strong liquidity and capital positions which protect our customers and shareholders in these difficult times.”
Allstate’s operating loss of $190 million for the third quarter of 2008 is primarily attributable to catastrophe pre-tax losses of $1.8 billion from 35 events, including Hurricanes Ike and Gustav. The $923 million net loss for the third quarter of 2008 reflects the operating loss and net realized capital losses of $728 million.
Catastrophe Mitigation Impact
Losses from Hurricanes Ike and Gustav were mitigated by catastrophe exposure management actions taken over the last several years, which include reductions in policies in force, reinsurance and policy changes. Reflecting the combination of reduced policies in force and ceded wind coverage in the coastal regions of Texas and Louisiana, at the beginning of the third quarter of 2008, the Company’s catastrophe exposure was 42% and 33%, respectively, below 2006 levels. Reinsurance recoverables during the quarter offset losses by $246 million. Allstate’s analysis shows that the Company’s losses from Hurricanes Ike and Gustav would have been approximately twice the amount recorded in the third quarter without the catastrophe exposure management actions and reinsurance programs put into place beginning in 2005.
Investment Portfolio Risk Mitigation Impact
As of September 30, 2008, Allstate's consolidated total investments were $105 billion, with more than two-thirds in investment grade fixed income securities. From June 30, 2008 to September 30, 2008, the Company’s portfolio value declined by approximately $8.6 billion, primarily reflecting reduced market valuations of $4.6 billion and net sales of $3.8 billion to fund net reductions in liabilities. The $4.6 billion decline in market valuations during the period was predominantly due to the widening of credit spreads and, to a lesser extent, equity market value declines. The decline was reflected through a $3.3 billion increase in net unrealized losses and $1.3 billion of realized capital losses.
Net realized capital losses for the third quarter of $1.3 billion on a pre-tax basis reduced net income by $728 million. Net realized capital losses primarily consisted of impairment write-downs of $666 million and change in intent write-downs of $453 million. While change in intent losses flow through the income statement, the Company believes the flexibility the classification provides enables it to execute faster market decisions. Since valuation related losses on these assets are realized each period, any potential losses realized upon sale will be limited to declines in value since the last reporting date.
Net unrealized losses, primarily reflecting depressed valuations from widening credit spreads, were $4.1 billion as of September 30, 2008. Gross unrealized losses as of September 30 were $6.3 billion, $2.5 billion higher than June 30, 2008. Given its current level of liquidity, the Company intends and believes it has the ability to hold these assets to recovery and therefore does not anticipate significant conversion from unrealized to realized losses.
The Company employs proactive risk mitigation and return optimization programs, which were augmented in June, 2008. The programs consist of macro-hedging actions, including equity hedges, interest rate risk hedges and credit spread risk hedges, as well as reductions in residential and commercial real estate holdings and financial assets. For investments under this program, the Company changed its intent to hold to recovery, which resulted in realized losses affecting the income statement.
During the third quarter, Allstate sold 33% of securities identified as part of the targeted $3.3 billion risk mitigation program. These assets were sold at approximately 95% of the fair values reported at June 30, 2008. Also during the quarter, Allstate’s macro-hedging program produced gains that partially offset investment losses.
Strong Capital and Liquidity Positions
Allstate maintains strong liquidity and capital supported by on-going catastrophe management actions and proactive investment risk mitigation and return optimization programs. As of September 30, 2008, the Company held capital totaling $16.9 billion, including $5.0 billion in invested assets at the holding company level, including Kennett Capital, Inc. These assets are available to meet general corporate purposes such as dividends, debt servicing and share repurchases and to support operating subsidiaries through capital contributions or intercompany borrowing arrangements. In October, Allstate’s board of directors approved infusions of up to $1.25 billion of additional capital into Allstate Life Insurance Company (“ALIC”) through Allstate Insurance Company and funded by the holding company.
The Company believes its current portfolio position and strong underlying operating cash flows provide sufficient liquidity to meet its needs. As of September 30, Allstate maintained $5.4 billion, or 5.1% of total investments, in same-day or next-day liquidity and $33.4 billion, or 31.9% of total investments, in assets that are generally saleable within ninety days. The Company also has access to a long-term, untapped revolving $1 billion line of credit available from a group of 13 banks through 2012. Allstate has had no commercial paper obligations outstanding in 2008 and no corporate debt coming due until $750 million is scheduled to mature in December 2009.
During the third quarter, Allstate further enhanced its liquidity position with a series of actions, including reducing its securities lending portfolio to $1.6 billion, shortening its investment portfolio duration, and early retirement of institutional markets deposits. In October, Allstate suspended its $2.0 billion share repurchase program and does not plan to complete it by the original target date of March, 2009. The Company will re-evaluate this program as market conditions develop in 2009. The number of shares repurchased under the program during the quarter was 9.9 million shares for $449 million.
“We’ve taken proactive and prudent steps to maintain strong capital and liquidity positions,” said Don Civgin, Allstate’s chief financial officer. “In these uncertain times we will remain vigilant. Our top priority is to ensure we have the capital and liquidity necessary to serve our customers and continue to deliver solid returns to our shareholders.”
Continued Underlying Business Profitability
Allstate’s Property-Liability business continued to produce strong underlying profitability. Favorable frequency combined with moderate severity to produce an underlying Property-Liability combined ratio of 85.9 for the quarter. Allstate Financial operating income declined to $88 million in the third quarter of 2008 from $147 million in the prior year quarter, reflecting lower investment spreads related to market conditions, proactive actions taken to improve liquidity and lower benefit spreads.
Outlook
“We expect volatile financial markets and tough economic conditions to persist for some time. Our focus will remain on running our businesses efficiently and effectively to serve our customers and proactively managing catastrophe and investment risk,” concluded Wilson. Allstate expects its Property-Liability underlying combined ratio, which excludes the effects of catastrophes and prior year reserve re-estimates, to be at the favorable end of the previously stated range of 86.0 and 88.0 for the full year 2008.
PERFORMANCE HIGHLIGHTS
Consolidated
- Consolidated revenues were $7.3 billion in the third quarter of 2008 compared to $9.0 billion in the third quarter of 2007, reflecting net realized capital losses in the third quarter of 2008 compared to net realized capital gains in the third quarter of 2007.
- Operating loss per diluted share was $0.35 in the quarter compared to operating income per diluted share of $1.54 in the third quarter of 2007, reflecting higher catastrophe losses. Catastrophe losses per diluted share, after-tax, were $2.19 and $0.38 in the third quarter of 2008 and 2007, respectively.
- Net loss per diluted share was $1.71 in the quarter compared to net income per diluted share of $1.70 in the third quarter of 2007, reflecting net realized capital losses in the third quarter of 2008 compared to net realized capital gains in the third quarter of 2007 and an operating loss in the third quarter of 2008 compared to operating income in the third quarter of 2007.
BUSINESS HIGHLIGHTS
|
($ in millions, except ratios) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||
|
Est.
2008 |
2007 |
%
Change |
Est.
2008 |
2007 |
%
Change |
||||||||||
| Property-Liability | |||||||||||||||
|
Premiums written(a) |
$6,966 | $7,075 | (1.5 | ) | $20,283 | $20,623 | (1.6 | ) | |||||||
|
Underwriting (loss) income(a) |
(865 | ) | 617 | NM | (79 | ) | 2,508 | (103.1 | ) | ||||||
| Net (loss) income | (661 | ) | 935 | (170.7 | ) | 281 | 3,514 | (92.0 | ) | ||||||
| Combined Ratio | 112.7 | 91.0 | 21.7 pts | 100.4 | 87.7 | 12.7 pts | |||||||||
| Allstate Financial | |||||||||||||||
|
Premiums and deposits(a) |
$1,896 | $2,302 | (17.6 | ) | $9,395 | $7,817 | 20.2 | ||||||||
| Operating income | 88 | 147 | (40.1 | ) | 349 | 457 | (23.6 | ) | |||||||
| Net (loss) income | (196 | ) | 70 | NM | (686 | ) | 434 | NM | |||||||
| Investments | |||||||||||||||
| Net investment income | $1,355 | $1,603 | (15.5 | ) | $4,293 | $4,808 | (10.7 | ) | |||||||
| Realized capital gains and losses | (1,288 | ) | 121 | NM | (3,158 | ) | 1,137 | NM | |||||||
| Total investments | 104,983 | 121,129 | (13.3 | ) | |||||||||||
|
Net unrealized capital gains and losses (pre-tax) |
(4,099 |
) |
2,606 |
NM |
|||||||||||
Property-Liability
- Property-Liability premiums written declined 1.5% in the third quarter of 2008 from the third quarter of 2007. Excluding the impact of the catastrophe reinsurance program, Property-Liability premiums written declined 2.4% in the quarter.
- Allstate brand standard auto premiums written declined 0.7% in the third quarter of 2008 from the third quarter of 2007. Contributing to this result were the following:
| -- | 1.1% decrease in policies in force ("PIF") | ||||||||
| -- | 0.5 point decline in the six month renewal ratio to 88.9% | ||||||||
| -- | 0.9% increase in six month average premium before reinsurance to $427 | ||||||||
| -- | 2.7% decrease in new issued applications |
- Allstate brand homeowners premiums written declined 0.9% in the third quarter of 2008, compared to the prior year quarter, primarily due to our catastrophe risk management actions. Contributing to this result were the following:
| -- | 4.0% decrease in PIF | ||||||||
| -- | 1.0 point increase in the twelve month renewal ratio to 87.3% | ||||||||
| -- | 0.7% increase in twelve month average premium before reinsurance to $852 | ||||||||
| -- | 23.4% decrease in new issued applications | ||||||||
| -- | $49 million decrease in catastrophe reinsurance costs |
- Standard auto property damage frequency decreased 11.8% and bodily injury frequency decreased 13.7% in the third quarter of 2008 compared to the third quarter of 2007, which may be in part due to a reduction in the number of miles driven. Claim severities (average paid cost per claim) for auto property damage and bodily injury decreased 0.3% and increased 6.4%, respectively. Increased catastrophe losses, however, led to a 0.9 point increase in the Allstate brand standard auto loss ratio in the third quarter of 2008 compared to the third quarter of 2007.
- Homeowners gross claim frequency, excluding catastrophes, increased 6.6% in the third quarter of 2008 compared to the third quarter of 2007 fueled by non-catastrophe weather-related claim trends. Claim severity (average paid cost per claim) for homeowners, excluding catastrophes, decreased 4.2% in the third quarter of 2008 compared to the third quarter of 2007. Higher catastrophe losses resulted in an 89.7 point increase to 158.1 in the Allstate brand homeowners loss ratio in the third quarter of 2008 compared to the third quarter of 2007. The effect of catastrophe losses on the Allstate brand homeowners loss ratio totaled 106.2 in the third quarter of 2008 compared to 19.8 in the third quarter of 2007.
- Catastrophe losses for the quarter totaled $1.8 billion, compared to $343 million in the third quarter of 2007, impacting the combined ratio by 26.8 points in the third quarter of 2008 and 5.0 points in the third quarter of 2007. Catastrophe losses for the quarter include estimates of losses for Hurricanes Ike and Gustav of $944 million and $459 million, respectively, among other events. The catastrophe losses for Hurricane Ike reflect reinsurance recoverables of $246 million. Hurricane Ike catastrophe losses included $325 million related to states other than Texas. Hurricane Ike is expected to be among the top three costliest U.S. hurricanes along with Hurricane Katrina of 2005 and Hurricane Andrew of 1992. Hurricane Gustav is expected to be among the top 10 costliest U.S. hurricanes. See the Catastrophe Losses, Reinsurance and Exposure Management section of this document for further detail.
- Property-Liability prior year reserve reestimates for the third quarter of 2008 netted to zero, compared to unfavorable prior year reserve reestimates of $52 million in the third quarter of 2007. Prior year reserve reestimates in the third quarter of 2007 resulted from the annual discontinued lines reserve study.
- Allstate expects the Property-Liability underlying combined ratio will be at the favorable end of the range of 86.0 and 88.0 for the full year 2008. The calculations of the underlying combined ratio for the three months and nine months ended September 30 are shown in the table below. Favorable reserve reestimates are shown in parenthesis.
|
Three months ended
September 30, |
Nine months ended
September 30, |
|||||||
|
Est.
2008 |
2007 |
Est.
2008 |
2007 |
|||||
| Combined ratio excluding the effect of catastrophes and prior year reserve reestimates (“underlying combined ratio”) | 85.9 | 86.0 | 85.2 | 84.7 | ||||
| Effect of catastrophe losses | 26.8 | 5.0 | 15.2 | 4.6 | ||||
| Effect of prior year non-catastrophe reserve reestimates | -- | -- | -- | (1.6 | ) | |||
| Combined ratio (GAAP) | 112.7 | 91.0 | 100.4 | 87.7 | ||||
| Effect of prior year catastrophe reserve reestimates | -- | 0.8 | 0.6 | 0.5 | ||||
Allstate Financial
- Premiums and deposits in the third quarter of 2008 were $1.9 billion, a decrease of $406 million or 17.6% from the prior year quarter. This decrease is due to the absence of issuances of institutional products in the third quarter of 2008 compared to $500 million in the prior year quarter, partially offset by an increase in retail premiums and deposits of $94 million or 5.2% due to an increase in deposits on fixed deferred annuities of 14.3%.
- Operating income for the third quarter of 2008 was $88 million, a decrease of $59 million from the prior year quarter. The decline was primarily due to lower investment spreads, reduced benefit spreads on life and annuities reflecting unfavorable mortality experience and increased operating expenses related to our continuing efforts to reinvent protection and retirement for consumers, partially offset by lower amortization of deferred policy acquisition costs (“DAC”).
- Net loss for the third quarter of 2008 was $196 million compared to net income of $70 million in the prior year quarter. The decline was primarily due to a $209 million increase in after-tax net realized capital losses including the effect of DAC and deferred sales inducements accretion related to the net realized capital losses, and a $59 million decline in operating income.
- During the third quarter of 2008, we retired $2.2 billion of institutional market deposits for which investors had elected to non-extend their maturity date through a combination of maturities, calls, and acquisitions in the secondary market. Total outstanding non-extended institutional market deposits were $1.3 billion as of September 30, 2008, all of which become due before the end of the third quarter of 2009. We have accumulated, and expect to maintain, short-term and other maturing investments to fund the retirement of these obligations.
Investments
- During the third quarter, reflecting decisions made and reported at the end of the second quarter, we pursued risk mitigation and return optimization programs to protect portfolio value. These programs performed as intended. Our stock market portfolio hedge, for example, experienced realized capital gains of $76 million which partially offset the impact of a 9% market decline on a large portion of our publicly traded equities portfolio. See derivative instruments table in the Realized Capital Gains and Losses Analysis section. During the third quarter of 2008, we sold $1.1 billion of investments that we believed to be vulnerable to significant additional credit and pricing pressures. See the Investments section of this document for more detail on investments for which we changed our intent to hold to recovery. We also implemented hedges to mitigate equity market risk, interest rate and credit spread risk.
- Consolidated net investment income was $1.4 billion in the third quarter of 2008, a decline of $248 million or 15.5% from $1.6 billion in the third quarter of 2007. Property-Liability net investment income decreased to $386 million in the third quarter of 2008 from $474 million in the third quarter of 2007, a decline of $88 million or 18.6%. This decline was due to lower average asset balances reflecting dividends to the parent company, reduced portfolio yields and valuation losses on limited partnership interests accounted for in accordance with the equity method of accounting in the current year quarter compared to income in the prior year quarter. Allstate Financial net investment income decreased to $937 million in the third quarter of 2008 from $1.1 billion in the third quarter of 2007, a decline of $149 million or 13.7%. This decline was primarily due to lower yields on floating rate securities, increased short-term investment balances reflecting liquidity management, lower average asset balances, and valuation losses on limited partnership interests in the current year quarter compared to income in the prior year quarter.
- Net realized capital losses were $1.3 billion on a pre-tax basis for the quarter, due to $666 million of impairment write-downs, $453 million of change in intent write-downs, $137 million of sales and $32 million of net losses on the settlement and valuation of derivative instruments. This compares to net realized capital gains of $121 million in the prior year quarter that were driven primarily by net gains on sales of $206 million partially offset by net losses on the valuation and settlement of derivative instruments of $50 million and impairment write-downs of $24 million. See the Realized Capital Gains and Losses Analysis section of this document for more information.
- Impairment write-downs of $666 million in the quarter comprised $488 million related to fixed income securities (primarily related to financial services sector corporate bonds, synthetic collateralized debt obligations, and Alt-A mortgage-backed securities), $139 million related to equity securities, and $39 million related to limited partnership interests. Over 71% of the impairment write-downs on fixed income securities are performing in line with anticipated or contractual cash flows, but were written down primarily because of expected deterioration in the performance of the underlying collateral. Equity securities were written down primarily due to the length of time and extent fair value was below cost.
- Change in intent write-downs of $453 million in the third quarter of 2008 were primarily a result of our risk mitigation and return optimization programs, strategic asset allocation actions and ongoing comprehensive reviews of our portfolios. These losses include $392 million related to securities for which we changed our intent to hold to recovery in the second quarter of 2008 that we still hold at September 30 and $61 million related to securities for which we changed our intent to hold to recovery in the third quarter of 2008 due to unanticipated changes in facts and circumstances. In the third quarter of the prior year, realized capital losses related to change in intent write-downs totaled $11 million.
- Net realized capital losses from sales of investments totaled $137 million in the quarter, compared to $206 million of net gains in the prior year quarter. This included $146 million of write-downs for equity securities effectively carried on a lower of cost or fair value basis.
- Net realized capital losses on the valuation and settlement of derivative instruments totaled $32 million for the third quarter of 2008 and included $132 million of gains for previously established risk reduction programs. These gains were offset by $40 million of losses for income generation programs involving replication and $124 million of losses for the accounting valuation of embedded equity options in fixed income securities, mainly from equity indexed notes and convertible bonds. In the third quarter of 2007, net realized capital losses on the valuation and settlement of derivative instruments totaled $50 million and included net losses of $98 million on risk mitigation programs and $9 million of net losses for the accounting valuation of embedded equity options in fixed income securities, partially offset by net gains of $57 million for income generation programs.
- Consolidated total investments were $105.0 billion as of September 30, 2008, a decline of $8.6 billion from June 30, 2008, due primarily to fair value decreases of $4.6 billion comprising an increase of $3.3 billion of unrealized net capital losses and $1.3 billion of net realized capital losses recognized in the quarter, and asset sales to support net liability decreases of $4.5 billion comprising $3.3 billion of retirements and maturities of Allstate Financial institutional markets deposits and $1.2 billion in lower funds associated with collateral received in conjunction with securities lending transactions.
- The increase in unrealized net capital losses during the third quarter of 2008 of $3.3 billion was primarily related to widening credit spreads and equity market declines. The total increase in unrealized net capital losses included unfavorable changes related to municipal bonds ($848 million), corporate bonds ($1.3 billion), commercial mortgage-backed securities ($375 million), asset-backed securities ($225 million) and equity securities ($391 million). The increase attributable to commercial mortgage-backed and asset-backed securities was also attributable to price declines due to market and liquidity disruptions. Net unrealized capital losses increased despite the realization of capital losses on sales and impairments, including change in intent write-downs, during the quarter. Consolidated net unrealized capital gains and losses are presented in the following table.
| ($ in millions) |
September 30,
2008 |
June 30,
2008 |
December 31,
2007 |
||||||||
| U.S. government and agencies | $ | 748 | $ | 854 | $ | 918 | |||||
| Municipal | (816 | ) | 32 | 720 | |||||||
| Corporate | (1,846 | ) | (530 | ) | 90 | ||||||
| Foreign government | 323 | 354 | 394 | ||||||||
| Mortgage-backed securities | (227 | ) | (183 | ) | (43 | ) | |||||
| Commercial mortgage-backed securities | (763 | ) | (388 | ) | (308 | ) | |||||
| Asset-backed securities | (1,576 | ) | (1,351 | ) | (816 | ) | |||||
| Redeemable preferred stock | (4 | ) | (2 | ) | 1 | ||||||
| Fixed income securities | (4,161 | ) | (1,214 | ) | 956 | ||||||
| Equity securities | 76 | 467 | 990 | ||||||||
| Derivatives | (14 | ) | (42 | ) | (33 | ) | |||||
| Net unrealized capital gains and losses | $ | (4,099 | ) | $ | (789 | ) | $ | 1,913 | |||
- Unrealized net capital losses on fixed income securities were $4.2 billion as of September 30, 2008, and comprised $1.9 billion of gross unrealized gains and $6.1 billion of gross unrealized losses. Included in gross unrealized losses were $2.5 billion of securities with a fair value below 70% of amortized cost, or 3.3% of our fixed income portfolio at September 30, 2008. The percentage of fair value to amortized cost for the remaining gross unrealized losses on fixed income securities at September 30, 2008 are shown in the following table.
| ($ in millions) |
Unrealized |
Fair |
% of total |
|||||||
| > 80% of amortized cost | $ | (3,131 | ) | $ | 42,354 | 55.7 | % | |||
| 70% to 80% of amortized cost | (933 | ) | 2,896 | 3.8 | ||||||
| < 70% of amortized cost | (1,984 | ) | 2,519 | 3.3 | ||||||
| Gross unrealized losses on fixed income securities | (6,048 | ) | 47,769 | 62.8 | ||||||
| Gross unrealized gains on fixed income securities | 1,887 | 28,239 | 37.2 | |||||||
| Net unrealized gains and losses on fixed income securities | $ | (4,161 | ) |
(1) |
$ | 76,008 | 100.0 | % | ||
(1) See the SFAS 157 Level 3 section of this document for further details of net unrealized losses on Level 3 investments totaling $2.4 billion as of September 30, 2008.
Included in the fixed income securities with a fair value less than 70% of amortized cost were unrealized losses for other collateralized debt obligations (“other CDO”) of $569 million (which primarily includes $270 million of cash flow collateralized loan obligations (“cash flow CLO”) and $99 million of synthetic collateralized debt obligations (“synthetic CDO”)), asset-backed residential mortgage-backed securities (“ABS RMBS”) of $538 million, corporate bonds of $480 million, and commercial mortgage-backed securities (“CMBS”) of $305 million. For additional information on ABS RMBS, CMBS, and other CDO, see the Securities Experiencing Illiquid and Disrupted Markets section of this document. We continue to believe that the unrealized losses on these securities are not necessarily predictive of the ultimate performance. The unrealized losses should reverse over the remaining lives of the securities in the absence of further deterioration in the collateral relative to our positions in the securities’ respective capital structures.
- For our illiquid investment portfolios, par value totaled $8.6 billion and amortized cost totaled $7.2 billion or 84% of par value at September 30, 2008, which is primarily the result of write-downs of approximately $1.4 billion. Fair value of these investments totaled $5.5 billion or 64% of par value. See additional details and discussion in the Securities Experiencing Illiquid and Disrupted Markets section of this document. Our illiquid portfolios include prime residential mortgage-backed securities (“Prime”), Alt-A residential mortgage-backed securities (“Alt-A”), commercial real estate collateralized debt obligations (“CRE CDO”), and certain asset-backed securities including ABS RMBS, asset-backed collateralized debt obligations (“ABS CDO”) and other CDO. In addition, for commercial mortgage-backed securities excluding CRE CDO, par value totaled $6.0 billion and amortized cost totaled $5.9 billion or 98% of par value, which was primarily the result of write-downs. Fair value totaled $5.1 billion or 85% of par value.
- Consolidated unrealized net capital losses after-tax and after adjustments for deferred policy acquisition costs, deferred sales inducements and insurance reserves, as of September 30, 2008, were $1.5 billion and were comprised of $640 million related to Property-Liability, $820 million related to Allstate Financial and $15 million related to Corporate and Other.
- Statutory accounting principles (“statutory”) for the recognition of write-downs resulting from changes in intent differ from those under GAAP. For statutory, declines in fair value below amortized cost resulting from changes in risk-free interest rates and general credit spread widening, are deemed other-than-temporary when the investor has the intent to sell the security at the financial reporting date. GAAP requires write-downs when the investor cannot assert a positive intent to hold a security to recovery, even if a decision to sell a security has not been made. At September 30, 2008, there are $186 million of after-tax unrealized losses, comprising $46 million for Property-Liability investments and $140 million for Allstate Financial investments, which have not been recognized in the statutory financial statements, related to securities which are subject to change in intent write-downs for GAAP since no intent to sell currently exists.
| THE ALLSTATE CORPORATION | ||||||||||||||||||||||||||||||||
| CONSOLIDATED AND SEGMENT HIGHLIGHTS | ||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||
| ($ in millions, except per share amounts, | Est. | Percent | Est. | Percent | ||||||||||||||||||||||||||||
| return data and ratios) | 2008 | 2007 | Change | Change | 2008 | 2007 | Change | Change | ||||||||||||||||||||||||
| Consolidated Highlights | ||||||||||||||||||||||||||||||||
| Revenues | $ | 7,320 | $ | 8,992 | $ | (1,672 | ) | (18.6 | ) | $ | 22,825 | $ | 27,778 | $ | (4,953 | ) | (17.8 | ) | ||||||||||||||
| Net (loss) income | (923 | ) | 978 | (1,901 | ) | (194.4 | ) | (550 | ) | 3,876 | (4,426 | ) | (114.2 | ) | ||||||||||||||||||
| Operating (loss) income | (190 | ) | 893 | (1,083 | ) | (121.3 | ) | 1,240 | 3,162 | (1,922 | ) | (60.8 | ) | |||||||||||||||||||
| (Loss) income per diluted share (1) | ||||||||||||||||||||||||||||||||
| Net | (1.71 | ) | 1.70 | (3.41 | ) | NM | (1.00 | ) | 6.41 |
(7.41 |
) | (115.6 | ) | |||||||||||||||||||
| Operating | (0.35 | ) | 1.54 | (1.89 | ) | (122.7 | ) | 2.26 | 5.23 |
(2.97 |
) | (56.8 | ) | |||||||||||||||||||
| Weighted average shares outstanding (diluted) (1) | 540.1 | 585.1 | (45.0 | ) | (7.7 | ) | 549.5 | 605.1 | (55.6 | ) | (9.2 | ) | ||||||||||||||||||||
| Net shares outstanding | 536.1 | 573.6 | (37.5 | ) | (6.5 | ) | ||||||||||||||||||||||||||
| Return on equity | ||||||||||||||||||||||||||||||||
| Net income | 1.1 | 23.2 | (22.1 | ) | pts. | NM | ||||||||||||||||||||||||||
| Operating income | 10.0 | 21.2 | (11.2 | ) | pts. | NM | ||||||||||||||||||||||||||
| Book value per diluted share | 31.44 | 37.45 |
(6.01 |
) | (16.0 | ) | ||||||||||||||||||||||||||
| Book value per diluted share, excluding the | ||||||||||||||||||||||||||||||||
| impact of unrealized net capital gains and | ||||||||||||||||||||||||||||||||
| losses on fixed income securities | 34.25 | 36.71 |
(2.46 |
) | (6.7 | ) | ||||||||||||||||||||||||||
| Property-Liability Highlights | ||||||||||||||||||||||||||||||||
| Property-Liability premiums written | $ | 6,966 | $ | 7,075 | $ | (109 | ) | (1.5 | ) | $ | 20,283 | $ | 20,623 | $ | (340 | ) | (1.6 | ) | ||||||||||||||
| Property-Liability revenues | 6,537 | 7,543 | (1,006 | ) | (13.3 | ) | 20,520 | 23,060 | (2,540 | ) | (11.0 | ) | ||||||||||||||||||||
| Net (loss) income | (661 | ) | 935 | (1,596 | ) | (170.7 | ) | 281 | 3,514 | (3,233 | ) | (92.0 | ) | |||||||||||||||||||
| Underwriting (loss) income | (865 | ) | 617 | (1,482 | ) | NM | (79 | ) | 2,508 | (2,587 | ) | (103.1 | ) | |||||||||||||||||||
| Net investment income | 386 | 474 | (88 | ) | (18.6 | ) | 1,287 | 1,482 | (195 | ) | (13.2 | ) | ||||||||||||||||||||
| Operating (loss) income | (248 | ) | 772 | (1,020 | ) | (132.1 | ) | 973 | 2,781 | (1,808 | ) | (65.0 | ) | |||||||||||||||||||
| Catastrophe losses | 1,816 | 343 | 1,473 | NM | 3,082 | 937 | 2,145 | NM | ||||||||||||||||||||||||
| Ratios: | ||||||||||||||||||||||||||||||||
| Allstate Protection loss ratio | 87.9 | 65.1 | 22.8 | pts. | NM | 75.9 | 63.2 | 12.7 | pts. | NM | ||||||||||||||||||||||
| Allstate Protection expense ratio | 24.7 | 24.8 | (0.1 | ) | pts. | NM | 24.4 | 24.4 | - | pts. | NM | |||||||||||||||||||||
| Allstate Protection combined ratio | 112.6 | 89.9 | 22.7 | pts. | NM | 100.3 | 87.6 | 12.7 | pts. | NM | ||||||||||||||||||||||
| Effect of Discontinued Lines and Coverages on | ||||||||||||||||||||||||||||||||
| combined ratio | 0.1 | 1.1 | (1.0 | ) | pts. | NM | 0.1 | 0.1 | - | pts. | NM | |||||||||||||||||||||
| Property-Liability combined ratio | 112.7 | 91.0 | 21.7 | pts. | NM | 100.4 | 87.7 | 12.7 | pts. | NM | ||||||||||||||||||||||
| Effect of catastrophe losses on combined ratio | 26.8 | 5.0 | 21.8 | pts. | NM | 15.2 | 4.6 | 10.6 | pts. | NM | ||||||||||||||||||||||
| Property-Liability combined ratio excluding | ||||||||||||||||||||||||||||||||
| effect of catastrophes | 85.9 | 86.0 | (0.1 | ) | pts. | NM | 85.2 | 83.1 | 2.1 | pts. | NM | |||||||||||||||||||||
| Effect of prior year reserve reestimates on | ||||||||||||||||||||||||||||||||
| combined ratio | - | 0.8 | (0.8 | ) | pts. | NM | 0.6 | (1.1 | ) | 1.7 | pts. | NM | ||||||||||||||||||||
| Effect of catastrophe losses included in prior | ||||||||||||||||||||||||||||||||
| year reserve reestimates on combined ratio | - | (0.8 | ) | 0.8 | pts. | NM | (0.6 | ) | (0.5 | ) | (0.1 | ) | pts. | NM | ||||||||||||||||||
| Property-Liability combined ratio excluding | ||||||||||||||||||||||||||||||||
| effect of catastrophes and prior year | ||||||||||||||||||||||||||||||||
| reserve reestimates | 85.9 | 86.0 | (0.1 | ) | pts. | NM | 85.2 | 84.7 | 0.5 | pts. | NM | |||||||||||||||||||||
| Allstate Financial Highlights | ||||||||||||||||||||||||||||||||
| Premiums and deposits | $ | 1,896 | $ | 2,302 | $ | (406 | ) | (17.6 | ) | $ | 9,395 | $ | 7,817 | $ | 1,578 | 20.2 | ||||||||||||||||
| Allstate Financial revenues | 806 | 1,408 | (602 | ) | (42.8 | ) | 2,290 | 4,598 | (2,308 | ) | (50.2 | ) | ||||||||||||||||||||
| Realized capital gains and losses (pre-tax) | (599 | ) | (127 | ) | (472 | ) | NM | (1,996 | ) | - | (1,996 | ) | NM | |||||||||||||||||||
| Net (loss) income | (196 | ) | 70 | (266 | ) | NM | (686 | ) | 434 | (1,120 | ) | NM | ||||||||||||||||||||
| Operating income | 88 | 147 | (59 | ) | (40.1 | ) | 349 | 457 | (108 | ) | (23.6 | ) | ||||||||||||||||||||
| Net income analysis | ||||||||||||||||||||||||||||||||
| Benefit spread | 97 | 129 | (32 | ) | (24.8 | ) | 335 | 361 | (26 | ) | (7.2 | ) | ||||||||||||||||||||
| Investment spread | 214 | 266 | (52 | ) | (19.5 | ) | 709 | 794 | (85 | ) | (10.7 | ) | ||||||||||||||||||||
| Investment Highlights | ||||||||||||||||||||||||||||||||
| Net investment income | $ | 1,355 | $ | 1,603 | $ | (248 | ) | (15.5 | ) | $ | 4,293 | $ | 4,808 | $ | (515 | ) | (10.7 | ) | ||||||||||||||
| Realized capital gains and losses (pre-tax) | (1,288 | ) | 121 | (1,409 | ) | NM | (3,158 | ) | 1,137 | (4,295 | ) | NM | ||||||||||||||||||||
| Total investments | 104,983 | 121,129 | (16,146 | ) | (13.3 | ) | ||||||||||||||||||||||||||
|
(1) As prescribed by accounting principles generally accepted in the United States of America ("GAAP"), the three months and nine months ended September 30, 2008 earnings per share amounts were computed discretely and the antidilutive effects of potential common shares outstanding totaling 2.6 million and 2.9 million, respectively, were excluded from weighted average shares - diluted due to the third quarter and year to date 2008 net loss. Accordingly, the sum of the per share amounts for the three quarters of 2008 does not equal the year to date per share amount. |
||||||||||||||||||||||||||||||||
| THE ALLSTATE CORPORATION | |||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||
| ($ in millions, except per share data) |
Est. |
2007 |
Percent |
Est. |
2007 |
Percent |
|||||||||||||||
| Revenues | |||||||||||||||||||||
| Property-liability insurance premiums | $ | 6,785 | $ | 6,819 | (0.5 | ) | $ | 20,299 | $ | 20,447 | (0.7 | ) | |||||||||
| Life and annuity premiums | |||||||||||||||||||||
| and contract charges | 468 | 449 | 4.2 | 1,391 | 1,386 | 0.4 | |||||||||||||||
| Net investment income | 1,355 | 1,603 | (15.5 | ) | 4,293 | 4,808 | (10.7 | ) | |||||||||||||
| Realized capital gains and losses | (1,288 | ) | 121 | NM | (3,158 | ) | 1,137 | NM | |||||||||||||
| Total revenues | 7,320 | 8,992 | (18.6 | ) | 22,825 | 27,778 | (17.8 | ) | |||||||||||||
| Costs and expenses | |||||||||||||||||||||
| Property-liability insurance | |||||||||||||||||||||
| claims and claims expense | 5,971 | 4,509 | 32.4 | 15,423 | 12,943 | 19.2 | |||||||||||||||
| Life and annuity contract benefits | 418 | 371 | 12.7 | 1,210 | 1,185 | 2.1 | |||||||||||||||
| Interest credited to contractholder funds | 586 | 685 | (14.5 | ) | 1,773 | 2,007 | (11.7 | ) | |||||||||||||
| Amortization of deferred policy | |||||||||||||||||||||
| acquisition costs | 980 | 1,170 | (16.2 | ) | 3,014 | 3,539 | (14.8 | ) | |||||||||||||
| Operating costs and expenses | 814 | 785 | 3.7 | 2,334 | 2,246 | 3.9 | |||||||||||||||
| Restructuring and related charges | 10 | 2 | NM | 4 | 5 | (20.0 | ) | ||||||||||||||
| Interest expense | 88 | 90 | (2.2 | ) | 264 | 245 | 7.8 | ||||||||||||||
| Total costs and expenses | 8,867 | 7,612 | 16.5 | 24,022 | 22,170 | 8.4 | |||||||||||||||
| Gain (loss) on disposition of operations | 3 | 6 | (50.0 | ) | (6 | ) | 8 | (175.0 | ) | ||||||||||||
| (Loss) income from operations before income | |||||||||||||||||||||
| tax (benefit) expense | (1,544 | ) | 1,386 | NM | (1,203 | ) | 5,616 | (121.4 | ) | ||||||||||||
| Income tax (benefit) expense | (621 | ) | 408 | NM | (653 | ) | 1,740 | (137.5 | ) | ||||||||||||
| Net (loss) income | $ | (923 | ) | $ | 978 | (194.4 | ) | $ | (550 | ) | $ | 3,876 | (114.2 | ) | |||||||
| Net (loss) income per share - Basic | $ | (1.71 | ) | $ | 1.70 | $ | (1.00 | ) | $ | 6.45 | |||||||||||
| Weighted average shares - Basic | 540.1 | 581.1 | 549.5 | 600.5 | |||||||||||||||||
| Net (loss) income per share - Diluted (1) | $ | (1.71 | ) | $ | 1.70 | $ | (1.00 | ) | $ | 6.41 | |||||||||||
| Weighted average shares - Diluted (1) | 540.1 | 585.1 | 549.5 | 605.1 | |||||||||||||||||
| Cash dividends declared per share | $ | 0.41 | $ | 0.38 | $ | 1.23 | $ | 1.14 | |||||||||||||
| (1) As prescribed by GAAP, the three months and nine months ended September 30, 2008 earnings per share amounts were computed discretely and the antidilutive effects of potential common shares outstanding totaling 2.6 million and 2.9 million, respectively, were excluded from weighted average shares - diluted due to the third quarter and year to date 2008 net loss. Accordingly, the sum of the per share amounts for the three quarters of 2008 does not equal the year to date per share amount. | |||||||||||||||||||||
| THE ALLSTATE CORPORATION | |||||||||||||||||||||||
| CONTRIBUTION TO INCOME | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
| ($ in millions, except per share data) |
Est. |
2007 |
Percent |
Est. |
2007 |
Percent |
|||||||||||||||||
| Contribution to income | |||||||||||||||||||||||
| Operating (loss) income before the impact of | |||||||||||||||||||||||
| restructuring and related charges | $ | (183 | ) | $ | 894 | (120.5 | ) | $ | 1,243 | $ | 3,165 | (60.7 | ) | ||||||||||
| Restructuring and related charges, | |||||||||||||||||||||||
| after-tax | 7 | 1 | NM | 3 | 3 | - | |||||||||||||||||
| Operating (loss) income | (190 | ) | 893 | (121.3 | ) | 1,240 | 3,162 | (60.8 | ) | ||||||||||||||
| Realized capital gains and losses, after-tax | (838 | ) | 80 | NM | (2,051 | ) | 737 | NM | |||||||||||||||
| DAC and DSI amortization relating to realized capital | |||||||||||||||||||||||
| gains and losses, after-tax | 110 | 11 | NM | 283 | (4 | ) | NM | ||||||||||||||||
| Reclassification of periodic settlements | |||||||||||||||||||||||
| and accruals on non-hedge derivative | |||||||||||||||||||||||
| instruments, after-tax | (7 | ) | (8 | ) | 12.5 | (18 | ) | (23 | ) | 21.7 | |||||||||||||
| Gain (loss) on disposition of operations, after-tax | 2 | 2 | - | (4 | ) | 4 | NM | ||||||||||||||||
| Net (loss) income | $ | (923 | ) | $ | 978 | (194.4 | ) | $ | (550 | ) | $ | 3,876 | (114.2 | ) | |||||||||
| Income per share - Diluted (1) | |||||||||||||||||||||||
| Operating (loss) income before the impact of | |||||||||||||||||||||||
| restructuring and related charges | $ | (0.34 | ) | $ | 1.54 | (122.1 | ) | $ | 2.26 | $ | 5.23 | (56.8 | ) | ||||||||||
| Restructuring and related charges, | |||||||||||||||||||||||
| after-tax | 0.01 | - | - | - | - | - | |||||||||||||||||
| Operating (loss) income | (0.35 | ) | 1.54 | (122.7 | ) | 2.26 | 5.23 | (56.8 | ) | ||||||||||||||
| Realized capital gains and losses, after-tax | (1.55 | ) | 0.15 | NM | (3.73 | ) | 1.22 | NM | |||||||||||||||
| DAC and DSI amortization relating to realized capital | |||||||||||||||||||||||
| gains and losses, after-tax | 0.20 | 0.01 | NM | 0.51 | (0.01 | ) | NM | ||||||||||||||||
| Reclassification of periodic settlements | |||||||||||||||||||||||
| and accruals on non-hedge derivative | |||||||||||||||||||||||
| instruments, after-tax | (0.01 | ) | (0.01 | ) | - | (0.03 | ) | (0.04 | ) | 25.0 | |||||||||||||
| Gain (loss) on disposition of operations, after-tax | - | 0.01 | (100.0 | ) | (0.01 | ) | 0.01 | - | |||||||||||||||
| Net (loss) income | $ | (1.71 | ) | $ | 1.70 | NM | $ | (1.00 | ) | $ | 6.41 | (115.6 | ) | ||||||||||
| (1) As prescribed by GAAP, the three months and nine months ended September 30, 2008 earnings per share amounts were computed discretely and the antidilutive effects of potential common shares outstanding totaling 2.6 million and 2.9 million, respectively, were excluded from weighted average shares - diluted due to the third quarter and year to date 2008 net loss. Accordingly, the sum of the per share amounts for the three quarters of 2008 does not equal the year to date per share amount. | |||||||||||||||||||||||
| THE ALLSTATE CORPORATION | ||||||||||||||||
| SEGMENT RESULTS | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| ($ in millions, except ratios) | Est. | Est. | ||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Property-Liability | ||||||||||||||||
| Premiums written (1) | $ | 6,966 | $ | 7,075 | $ | 20,283 | $ | 20,623 | ||||||||
| Premiums earned | $ | 6,785 | $ | 6,819 | $ | 20,299 | $ | 20,447 | ||||||||
| Claims and claims expense | 5,971 | 4,509 | 15,423 | 12,943 | ||||||||||||
| Amortization of deferred policy acquisition costs | 991 | 1,025 | 3,002 | 3,081 | ||||||||||||
| Operating costs and expenses | 678 | 667 | 1,949 | 1,910 | ||||||||||||
| Restructuring and related charges | 10 | 1 | 4 | 5 | ||||||||||||
| Underwriting (loss) income | (865 | ) | 617 | (79 | ) | 2,508 | ||||||||||
| Net investment income | 386 | 474 | 1,287 | 1,482 | ||||||||||||
| Periodic settlements and accruals on non-hedge derivative instruments | 1 | - | 2 | - | ||||||||||||
| Income tax (benefit) expense on operations | (230 | ) | 319 | 237 | 1,209 | |||||||||||
| Operating (loss) income | (248 | ) | 772 | 973 | 2,781 | |||||||||||
| Realized capital gains and losses, after-tax | (412 | ) | 163 | (690 | ) | 733 | ||||||||||
| Reclassification of periodic settlements and accruals on non-hedge | ||||||||||||||||
| derivative instruments, after-tax | (1 | ) | - | (2 | ) | - | ||||||||||
| Net (loss) income | $ | (661 | ) | $ | 935 | $ | 281 | $ | 3,514 | |||||||
| Catastrophe losses | $ | 1,816 | $ | 343 | $ | 3,082 | $ | 937 | ||||||||
| Operating ratios: | ||||||||||||||||
| Claims and claims expense ratio | 88.0 | 66.1 | 76.0 | 63.3 | ||||||||||||
| Expense ratio | 24.7 | 24.9 | 24.4 | 24.4 | ||||||||||||